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  1. And thank you for taking your time to answer questions.

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  2. I dind’t take you as a behavioral economist. I favour your approach. I just want to know how you make the judgement whether or not an emotion-based decision is right or wrong. For example, you could say that investment decisions shouldn’t be based on anger but on trust and fear. Then you would make some sort of emotional normative order for investment markets in your example. But the anger from your loss could also be your motivation to not make the same mistake again. So anger is relevant for learning. I think the adaptive tool box analogy somehow misses this point. First of all who uses the toolbox and in what way? It reminds me of an Homunculus argument.

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  3. Mostly I would say that economists mistakenly believe there to be only one rationality – that which underlies the normative prescriptions of neoclassical economics. Actually many behaviours which economists persist in seeing as irrational turn out to remarkably adaptive in a complex messy social world in which we only ever have partial information and in which trust in providers of information is a real issue. See for example the work of Gerd Gigerenzer.

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    • I agree that neoclassical economics usually assume one rationality. But I think for behavioral economics it is often also true. Gigerenzer is indeed different. Still I wonder: how do you specify the case in which emotions mislead us? Ex-post it is easy to say that you got carried away, if you make losses. But then again emotions are helpful in a lot of situations. For me it would not make sense to say emotions=gains=rational and emotions=losses=irrational.

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      • I think this misses the point. Rather than equate emotions with irrationality, we should understand them as just one tool for thinking. Just as we can make errors of judgement in calculating a probability or in carefully analyzing a data set, so we can make errors of judgement in drawing on our emotions – for example mistaking the mood which carries over from an earlier loss for genuine information about the latest trade we are considering or the residual anger from an argument with a lover for relevant information in a customer service encounter.

        By the way, I don’t regard myself as a behavioral economist. Behavioural economics and its close cousin, behavioural finance are mostly concerned with very simple models of human behaviour which lead to computable predictions which can be used to understand aggregate market behaviour. I am much more interested in understanding the behaviour of individuals and in how both context and individual differences interact to influence such behaviour. This requires much richer models of human psychology and the social systems and institutions in which we partake. Thus I am very interested in the complex multiple rationalities which underlie human behaviour.

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  4. But what does this mean for economics? The functional role of emotions needs a singular reference point which is rational decision making (=functional free markets?). Is that reference point somehow emotionless? Since we should not surpress them I guess it should have some room for emotions. Also, does this mean that for short periods emotions can be “rational”, while in the long-run they can only be irrational or meaningless b/c the referencepoint is already specified?

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About Mark Fenton-O'Creevy

Mark Fenton-O'Creevy is Professor of Organisational Behaviour at the Open University and is Associate Dean (External Engagement) for the Open University Faculty of Business and Law, where he is also a member of the True Potential Centre for the Public Understanding of Finance (PUFin). He is an educator, researcher and consultant. He has a long standing interest in the work, behaviour and performance of professional traders. He has acted as an academic advisor to BBC programmes including the Money Programme', and 'The Love of Money' and (with Adrian Furnham) created the 'Big Money Test for the BBC's LabUK and the Watchdog programme.

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